Money managers are increasing their cash holdings as a growing proportion believe equity and bond markets are overvalued, said Bank of America Merrill Lynch's latest monthly fund manager survey.
Average cash holdings rose to 5.7% of money managers' portfolios in June, the highest level since November 2001 and up from 5.5% in May, while a net 1% reported being overweight global equities, the lowest reading in four years and down from a net 6% overweight last month.
For the second consecutive month, Brexit — the U.K. potentially leaving the European Union — is viewed as the biggest tail risk by money managers (30%), followed by “quantitative failure” by central banks trying to revitalize economies (18%) and devaluation/defaults in China (15%).
However, two-thirds of investors still think Brexit is unlikely or not at all likely, and a record net 26% of investors think the British pound is undervalued, the June survey found. In May, 71% of investors said Brexit was unlikely or not at all likely, and a net 20% viewed the British pound as undervalued.
Despite managers' risk aversion, a net 23% of survey respondents expect a stronger global economy over the next 12 months, and a net 10% think global profits will improve over the next year, the highest readings in six months. Additionally, a net 66% of investors expect a higher global consumer price index over the next year, the highest reading in 11 months;
Other key findings from the June survey include:
- U.S equity, U.K. equity and emerging markets equity allocations improved to a net 15% underweight, 23% underweight and 6% overweight, respectively, compared to a net 18% underweight, 36% underweight and 2% overweight last month;
- Eurozone equity and Japanese equity allocations remained unchanged at a net 26% overweight and 6% underweight, respectively; and
- Bond and commodity allocations improved to 34% net underweight and 12% net underweight, respectively, vs. 41% net underweight and 19% net underweight in May.
“While corporate bond and U.S. stock prices are at record highs, investors have a mountain of cash, which means negative summer events could thus quickly become tradable buying opportunities,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release on the results.
The survey of 213 money managers representing $654 billion in assets under management was conducted June 3-9.